UniCredit’s Orcel could still sweeten its bid and double down on M&A

Torn between two potential takeovers, UniCredit’s Andrea Orcel still has room to step up its bid for Italy’s Banco BPM, analysts say, while political turmoil stalls a deal with Germany. Commerzbank.

Once a key architect in the controversial 2007 takeover and subsequent breakup of Dutch bank ABN Amro, Orcel revisited its cross-border consolidation ambitions with the September announcement of a surprise stake in Commerzbank. Until recently, the latter was considered a possible partner of Germany’s largest lender, Deutsche Bank.

Amid opposition from the German government – and turmoil in Chancellor Olaf Scholz’s ruling coalition – UniCredit also last month turned its eye to Banco BPM, with an offer of 10 billion euros ($10.5 billion) by an Italian peer. it was delivered on “unusual terms” and does not reflect its profitability and growth potential.

Along the way, Orcel has infuriated Italian officials, with Economy Minister Giancarlo Giorgetti warning that “the safest way to lose the war is to engage in two borders,” according to Italian newswire Ansa.

Analysts say the overachieved UniCredit – its CET1 ratio, which reflects the financial strength and soundness of the bank, stood at more than 16% in the first three quarters of this year – could still improve its domestic appeal.

“There is an opportunity to increase the [Banco BPM] to provide,” Johann Scholtz, senior analyst with Morningstar, told CNBC.

However, he warned of “limited” room to do so. “Think more than 10% [increase]it will probably reduce the earnings of the shareholders.”

UniCredit’s first proposal was for a stock deal that would combine the two largest Italian lenders, but they offered only 6.657 euros per share.

Both Scholtz and Filippo Alloatti, senior credit analyst at Federated Hermes, said UniCredit could sweeten the offer by taking part of the money.

“Remember, that is the second attempt from Orcel to buy [Banco] BPM … I don’t think there will be a third attempt. I think even if they close [the deal] now, or maybe you’re leaving. So I believe there is potential money on the table,” Alloatti told CNBC. Orcel last month called Banco BPM a “historic target” – fueling media reports that UniCredit had sought a domestic union in -2022.

The Italian stage was set for M&A activity at the beginning of last month, after Banco BPM acquired a 5% stake in Monte dei Paschi – the world’s oldest lender and another that UniCredit had targeted for takeover, until talks collapsed in -2021 – when Rome wants to reduce its price. in the bailed out bank.

Seriously, Scholtz noted, UniCredit’s offer is “impressive [Banco] BPM has been in a difficult situation,” causing the impunity law that prohibits it from any action that could block the bid without the consent of the shareholders – and it could hinder the ambitions of Banco BPM in early November to gain control of the fund manager Anima Holding, which also owns 4. % part of Monte dei Paschi.

A merger attack may be UniCredit’s best defense in an environment of lower interest rates.

“Multi-year restructuring, balance sheet de-risking and improved loss-absorbing capacity” propelled UniCredit to a BBB+ long-term credit rating from Fitch Ratings in October, above Italian sovereign bonds.

But the lender now has to contend with an environment of monetary policy easing, where it is “highly exposed to changes in interest rates due to its limited presence in asset management and bancassurance,” Alessandro Boratti, an analyst at Scope Ratings, wrote last month.

Both prospects hedge some of that exposure. The union of Commerzbank in Germany, where UniCredit operates through its HypoVereinsbank division, can create synergies in capital markets, advisors, payments and trade finance, JPMorgan analysts wrote in a November note. They added that such a union would produce “limited” benefits in financing, as the two banks already trade closely.

Closer to home, Scholtz notes, Banco BPM offers complementary capabilities in asset management. Alloatti said finding a domestic peer is one of the remaining options for the Italian lender to take a leading role in the domestic sector.

“There is not much they can buy in Italy to cover the gap [Italy’s largest bank] Intesa. Maybe Banco BPM … that’s why they looked at it in the past,” said Alloatti. “Banco BPM is the only bank they can buy to get closer to Intesa.” Intesa Sanpaolo is currently the largest bank in Italy by total assets.

It is approaching Banco BPM, KBW Analyst Hugo Cruz told CNBC in an emailed comment, and has “added value” to show German shareholders that UniCredit has other M&A options available to it. He emphasized, however, that the domestic acquisition bid is likely “a response to the acceleration of the consolidation process of Italian banks,” caused by Banco BPM’s acquisition of its Monte dei Paschi interest.

Orcel may need to decide between going abroad or staying home, with analysts pointing to high merger costs and a large amount of management time if UniCredit tries to absorb both of its takeover targets.

Finally, KBW’s Cruz said, the Italian lender – who got his 15^th consecutive quarter of growth this fall and has seen a nearly 61% rise in its share price in the year to date — it could opt to go independent.

“I don’t think Mr. Orcel should buy from the bank. He has already said that any purchase will have to add value in comparison [UniCredit]independent strategy, and if there is no profit, the bank will continue with the same strategy that has already included a high level of distribution of funds to shareholders and that targets the use of excess funds by the end of 2027,” he said, noting that the Italian lender. has stopped bidding before “because it was still being restructured and had no money of adoption.”

“We hope they’ll have the good sense to walk away from both deals” if they don’t repay shareholders, Morningstar’s Scholtz said.